Small and medium-sized agricultural enterprises can drive Africa’s economic growth

Dr. Agnes M. Kalibata is the President of the Africa-based, Africa-led Alliance for a Green Revolution in Africa (AGRA) and former Rwandan Minister of Agriculture and Animal Resources.

Evidence from around the world shows that no region has developed a strong economy without first establishing a successful agricultural sector. Africa is not an exception, especially considering that 70% of its population depends directly on agriculture for their livelihood, mostly as smallholder farmers. Agriculture is indeed Africa’s surest path to inclusive growth, development and prosperity.

To achieve this transformation, smallholders will have to transition from farming for survival, to farming as a thriving business. While we are already seeing early signs of this change, farmers require the catalytic actions of many other players to fully realise their potential.

The biggest difference for these farmers is coming from entrepreneurs especially the small and medium-sized enterprises (SMEs). These SMEs are delivering formerly unavailable, inaccessible and unaffordable services to millions of farmers. They are improving how farmers access yield improving seeds and fertilisers, and they are making it possible for smallholders to obtain mechanisation services; irrigation equipment; and post-harvest technologies. They are also giving farmers access to ICT technologies that improve farming efficiency as well as providing farmers with skills and knowledge of the best farming practices through village-based extension agents.

70% of Africa's population depends directly on agriculture for their livelihood, mostly provided by smallholder farmers

SMEs in Africa have also become anchors of financial flows into the agricultural sector. They are innovating and creating products that unlock funding from traditional financial institutions which benefits actors along entire agricultural value chains.

The greatest role that the SMEs have played is giving farmers access to structured markets. They are aggregating produce from individual farms and linking the farmers to national, regional and global markets. This is not only boosting the farmers’ incomes, but is also increasing their appetite to invest more in their farms to raise productivity. This is an effective poverty reduction tool.

For example, in the past five years, the SMEs we work with have aggregated over 600,000 metrics tons of commodities worth USD 177m, benefiting close to 800,000 farmers in ten African countries.

In the process, SMEs are increasing capital flows in Africa as global multi-nationals take advantage of the market the SMEs create to do business with the continent. These SMEs are therefore not only the anchors of a growing food and beverages industry, they are also fanning the fire of an industrialisation push that is beginning to catch on in most countries with monumental impacts on entire economies.

SMEs are increasing capital flows in Africa as global multi-nationals take advantage of the market

With some of the fastest growing economies in the last ten years being in Africa, a population that is expected to hit the two billion mark by 2050, the rapid rate of urbanisation and a food market estimated to be worth USD 1tn in less than 15 years, the future can only be bright for these SMEs. Their entrepreneurship is generating winds of change that are sweeping across the vastness of the continent resulting in an agri-based SMEs revolution. The continent’s 51,000,000 small farms, 80% of which are less than two hectares, are ground zero to the revolution.

However, while SMEs are the most transformative force in the agriculture sector on the continent, they are not taking off fast enough due to lack of support for them to be a vehicle to drive inclusive development and meet the demands of the Sustainable Development Goals.

For example, financial institutions seem not to have woken up to the business opportunity presented by these SMEs which do not only impact millions of lives through improved livelihoods and poverty reduction, but also create millions of jobs. The financial institutions, instead, focus more on the SMEs challenges and size which they consider too small to invest in. Most investors are only looking to invest in perfect businesses with a portfolio of USD 5 to USD 10 million. This is a condition I have christened the ‘perfect SME syndrome’.

This raises two truths. First, such funds do not benefit Africa’s nascent agriculture SMEs that require smaller investments of USD 100,000, 500,000 or even 1,000,000. Second, none or few such perfect SMEs exist in the agriculture sector in Africa. Many are small and others need affordable capital while most require technical capacities to attain their full potential whose glimpses we are seeing.

There will be no question that an SMEs-led green revolution will happen in Africa

Such efforts would require a redesign of the many investment funds and financial products to suit the needs of these SMEs in the business landscape. Its time financial institutions and investment funds addressed their deeply entrenched ‘perfect SME syndrome’ and shifted focus to businesses that are working, despite their challenges.

Lastly, Africa’s agriculture SMEs are up against cheap imports. A good number of global businesses, including those in Europe, look to Africa as a great market. While this might appear lucrative in the short-term, it would make more sense for these businesses to invest in Africa where the market is, nurture its SMEs, tap into its natural resources and its energetic workforce to produce commodities for both the domestic and global markets while creating employment opportunities.

When this happens, there will be no question that an SMEs-led green revolution will happen in Africa, one that has the ability to deliver on a triple bottom-line; higher dividends on capital, poverty reduction and healthier ecosystems. This is not just a win-win but a buy-one-get-three outcome. More importantly, this is an opportunity for investors to do well, by doing good.